UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

SECURITIES EXCHANGE ACT OF 1934

XYRATEX LTD

 (Translation of registrant’s name into English)

Langstone Road,

Havant
PO9 1SA
United Kingdom

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
x Form 20-F     o Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

NEWS RELEASE

Havant, UK — October 17, 2011 - Xyratex Ltd (Nasdaq: XRTX) today released the following financial information for the third quarter of its 2011 fiscal year, ending August 31, 2011:

·                                          Management’s Discussion and Analysis of Financial Condition and Results of Operations

·                                          Unaudited condensed consolidated financial statements

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section contains forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include those listed under “Risk Factors” and elsewhere in our Annual Report on Form 20-F as filed with the Securities and Exchange Commission. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Overview

We are a leading provider of enterprise-class data storage subsystems and hard disk drive capital equipment. We operate in two business segments: Networked Storage Solutions (NSS) and Storage Infrastructure (SI).

Our NSS products are primarily hard disk drive (HDD) based storage subsystems, which we provide to Original Equipment Manufacturers (OEMs) and our SI products consist of disk drive manufacturing process equipment, which we sell directly to manufacturers of disk drives and disk drive components. We form long-term strategic relationships with our customers and we support them through our operations in the United States, Asia and Europe. In our 2010 fiscal year, sales to our top six customers, NetApp Inc., Dell Inc., Seagate Technology PLC, IBM, Western Digital Corporation and EMC accounted for 91% of our revenues with sales to NetApp, Dell, Seagate and IBM accounting for 41%, 14%, 13% and 11% of our revenues respectively. Our top six customers in the nine months ended August 31, 2011 were NetApp, Dell, IBM, Hewlett-Packard, EMC and Seagate and accounted for 93% of our revenues with sales to NetApp, Dell and IBM accounting for 43%, 22% and 12% of our revenues, respectively. We had 35 customers that individually contributed more than $0.5 million to revenues in our 2010 fiscal year.

As well as our manufacturing and operational capability, our revenues are highly dependent on our research and development efforts. We enter into joint development projects with our key customers and suppliers in order to research and introduce new technologies and products.

Revenues

Revenues from sales of products in both of our segments are impacted by underlying increases in the amount of digitally stored information. Our NSS revenues are primarily dependent on the worldwide external disk storage systems market, the market share of our OEM customer base, particularly that of key customers, and changes in that customer base. Our SI revenues are primarily derived from the sale of four main product lines: disk drive production test and qualification systems, media write systems, automation and factory control technology, and optical inspection systems. Our SI revenues are specifically affected by changes in shipped volume and increases in the individual storage capacity of disk drives. Revenues from these products are subject to significant fluctuations, particularly from quarter to quarter, as they are dependent on the capital investment decisions and installation schedules of our customers.

In our 2009 fiscal year, our NSS and SI revenues were impacted by the effects of upheaval in the financial markets on the macro-economic environment. This impact was particularly severe for the SI business as the disk drive manufacturers scaled back their production capacity in response to lower demand, particularly for personal computers. We saw customer demand increase in the second half of 2009 as underlying market conditions improved both for enterprise and consumer storage and that trend continued into the first half of 2010, with a particularly significant increase in revenues for SI products. We believe that, for SI products, 2010 revenues partly reflected the impact of a lower than expected level of capital expenditure by the disk drive manufacturers in 2009 relative to underlying demand for HDDs. We have estimated that this increased 2010 revenues by approximately $70 million. We have seen a reduction in the level of demand for our SI products in 2011, which we believe reflects changes in the underlying market for disk drives, such as a reduction in demand for laptop drives, as well as customer specific factors including the proposed acquisition by Western Digital of the disk drive operations of Hitachi, an emerging customer and the effect of increased competition for production test and qualification systems. For these reasons our SI revenues have fallen significantly in the first nine months of our 2011 fiscal year.

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Over at least the past five years we have seen underlying growth in demand for NSS products from many of our OEM customers, which we believe relates to factors including increases in the amount of digitally stored information, increased IT spending, growth in the specific markets that our customers address and an increased market share of our customers. Commencing in 2009 we enabled our largest customer, NetApp, to source a proportion of the products we supply from an alternative supplier. This proportion is set at a maximum of 25% for our 2011 fiscal year, increasing to 50% in our 2012 fiscal year. Over the longer term our revenues with our major customers will significantly depend on our ability to develop and manufacture products that compete well with those provided by contract manufacturers and these customers’ own development efforts.

Foreign Exchange Rate Fluctuations

The functional currency for all our operations is U.S. dollars and the majority of our revenues and cost of revenues are denominated in U.S. dollars. A significant proportion (approximately $65 million in our 2010 fiscal year) of our non-U.S. dollar operating expenses relates to payroll and other expenses of our U.K. operations. To a lesser extent we are also exposed to movements in the Malaysian Ringgit relative to the U.S. dollar due to our operations in Malaysia. We manage these exchange rate exposures through the use of forward foreign currency exchange contracts and option agreements. By using these derivative instruments, increases or decreases in our U.K. pound operating expenses resulting from changes in the U.S. dollar to U.K. pound exchange rate are partially offset by realized gains and losses on the derivative instruments.

In previous fiscal years there has been significant volatility in the exchange rate between the U.K. pound and the U.S. dollar. We have hedged the majority of our exposure to this exchange rate movement for approximately one year ahead and we are particularly impacted by the movement in average annual exchange rates.  The average value of the U.K. pound relative to the U.S. dollar did not move significantly from 2009 to 2010 and therefore expenses in the first nine months of our 2011 fiscal year have not varied significantly as a result of changes in exchange rates.

Gross Profit

Our gross profit margins change primarily as a result of fluctuations in our product and customer mix. Our gross margins also change as a result of changes to product pricing, provisions for obsolescence, manufacturing volumes and costs of components. The margins for our NSS products tend to be lower than the margins of our SI products and therefore our gross profit as a percentage of revenues will continue to vary with the proportions of revenues in each segment.

Operating expenses

We would generally expect operating expenses to change in line with changes in revenue. Although we reduced expenditure in 2009 as part of a cost reduction exercise, we continued to develop our technology base to support our customers and be able to take advantage of the market improvements that we subsequently experienced. We increased our expenditure during 2010 to support our customers’ growing demand and to expand on opportunities for growth in both of our segments. In 2011 we have experienced a significant fall in SI revenues. We are therefore reducing fixed costs where we are able to do so without impacting our competitive position, although this is unlikely to have a significant impact on overall operating expenses until 2012.

Due to the level of competition in the markets in which we operate and the rapid changes in technology, our future revenues are heavily dependent on the improvements we make to our products and the introduction of new products. During our 2010 fiscal year, our research and development expenses related to over 70 separate projects covering improving existing products, meeting customer specific requirements and entering new markets, such as development of a product to address the High Performance Computing market and our recently launched substrate optical inspection system.

Share Repurchase Plan, Dividend and Bank Facilities

We announced in March 2011 that we would recommence the share repurchase plan initially approved during the first quarter of 2008, and increased the maximum value of shares that may be repurchased. According to the revised terms of the plan, we may repurchase up to an additional $50 million of the outstanding shares following April 30, 2011. As of August 31, 2011, we had 28.3 million shares outstanding having repurchased 2.6 million shares at an aggregate cost of $23.9 million. This amount has been deducted from Additional Paid in Capital. In addition, we paid our first dividend in the third quarter of our 2011 fiscal year. The cash dividend was set at $0.05 a share and totaled approximately $1.5 million.

In April 2011, we canceled our credit facilities with our bank, HSBC. Prior to this we had multi-currency credit facilities with HSBC totaling $55 million. Our credit facilities have remained unutilized since 2005. We believe that our

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existing cash balances will be sufficient to fund our operations over at least the next twelve months and plan to fund any share repurchases out of cash generated from operations. Therefore we have decided that the fees associated with maintaining the facilities are an unnecessary cost at this time. HSBC continue to provide us with operational banking facilities including a foreign exchange contract facility. We believe that HSBC, or another banking institution, would favorably consider providing us with new credit facilities in the future if there was a requirement and we were able to comply with usual banking covenants. However, we cannot assure you that such financing would be available to us on acceptable terms or at all.

Provision for Income Taxes

We are subject to taxation primarily in the United Kingdom, the United States and Malaysia. Our Malaysian operations benefit from a beneficial tax status which has provided us with a zero tax rate on substantially all of our income arising in Malaysia. The beneficial tax status relating to SI products was granted in 2006 and ends in April 2012. The beneficial tax status relating to NSS products was granted in February 2009 and ends in 2017. The beneficial tax status for both SI and NSS products is subject to meeting certain requirements. We are seeking to obtain future incentives to extend the beneficial arrangements for both product groups. We do not anticipate that our effective tax rate will increase significantly in our 2012 fiscal year.

We have significant loss carryforwards and other deferred tax assets in the United Kingdom and as a result we have not been required to make any significant U.K. tax payments in recent fiscal years. As of November 30, 2009, we recorded a $33.9 million valuation allowance against the book value of U.K. deferred tax assets at that date. Following the significant consolidated and U.K. subsidiary profit recorded in our 2010 fiscal year and our expectations for future fiscal years, we determined that no valuation allowance should be retained against the remaining $13.9 million deferred tax asset as of November 30, 2010.

In the United Kingdom and the United States, we benefit from research and development tax credits.

As of November 30, 2010, we retained a deferred tax asset of $10.1 million related to loss carryforwards and other timing differences in the United States. This includes an amount of $3.1 million related to temporary differences associated with equity compensation expense which was recorded in our 2010 fiscal year, having been previously not recognized. Of this amount, $2.6 million relates to 2009 with the remainder relating to 2010. Having determined that this amount was not material to prior periods and to net income for our 2010 fiscal year, we made the correction as a benefit to income taxes in our 2010 fiscal year.

Results from Continuing Operations

The following table sets forth, for the periods indicated, selected operating data as a percentage of revenues.

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Three Months Ended August 31, 2011 Compared to the Three Months Ended August 31, 2010

The following is a tabular presentation of our results of operations for the three months ended August 31, 2011 compared to the three months ended August 31, 2010. Following the table is a discussion and analysis of our business and results of operations for such periods.

Revenues

The 15.9% decrease in our revenues in the three months ended August 31, 2011 compared to the three months ended August 31, 2010 was primarily attributable to decreased sales of our SI products.

Revenues from sales of our NSS products increased by $19.4 million, or 6.1%. This was largely due to increased demand resulting from two of our customers being acquired by our largest customers and the subsequent sale of our products into the expanded market that these larger companies are able to address. This was offset by a $31.3 million decrease in revenue from our largest customer, NetApp, who, in accordance with the agreement we have with them, have sourced a greater proportion of the products we supply from an alternative supplier.

Revenues from sales of our SI products decreased by $87.8 million, or 77.7%. Demand for SI products reduced due to changes in the underlying market for disk drives such as a reduction in demand for laptop drives as well as customer specific factors, including the proposed acquisition by Western Digital of the disk drive operations of Hitachi, an emerging customer, and increased competition for the supply of production test and qualification systems. In addition, revenue in the first half of 2010 benefited from a catch-up following under investment by customers in 2009 in response to the recession.

Cost of Revenues and Gross Profit

The decrease in cost of revenues and in gross profit in the three months ended August 31, 2011 compared to the three months ended August 31, 2010 was primarily due to lower SI revenues. As a percentage of revenues, our gross profit was 16.7% for the three months ended August 31, 2011 compared to 17.6% for the three months ended August 31, 2010. This change was primarily attributable to the decrease in SI revenues and margins.

The gross margin for our NSS products increased to 17.2% in the three months ended August 31, 2011 from 12.0% in the three months ended August 31, 2010. This was primarily due to a number of changes to customer and product mix. These beneficial changes included a delay in the expected transition to new lower margin products and the

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product mix effect of increased demand for higher margin products resulting from certain of our customers being acquired.

The gross margin for SI products decreased to 9.6% in the three months ended August 31, 2011, from 33.8% in the three months ended August 31, 2010. This decrease resulted primarily from the effect of fixed costs relative to lower volumes which reduced the gross margin by approximately 16%. The remaining shortfall related to changes in product mix, as 2011 revenue includes early stage products that are still in the higher cost introductory phase.

In measuring the performance of our business segments from period to period without variations caused by special or unusual items, we focus on gross profit by product group, which excludes a non-cash equity compensation charge of $0.1 million for the three months ended August 31, 2011 and $0.4 million for the three months ended August 31, 2010. See Note 12 to our unaudited condensed consolidated financial statements for a description of our segments and how we measure segment performance.

Research and Development

The $6.1 million, or 25.5%, increase in research and development expense in the three months ended August 31, 2011 compared to the three months ended August 31, 2010 resulted primarily from an increase in expenses related to actual and anticipated growth in the business, including an increase in external project costs of $3.4 million and staff costs of $2.2 million. Expenditures were reduced in 2009 in response to the recession and were increased through 2010 as business conditions improved. In September 2011 we commenced plans to reduce expenditure in response to the lower demand for SI products and therefore expect research and development expenses to decrease in 2012.

Selling, General and Administrative

Selling, general and administrative expense increased by $0.8 million, or 5.0%, in the three months ended August 31, 2011 compared to the three months ended August 31, 2010. The increase primarily resulted from increased costs related to supporting the planned increase in revenues, including a 20% increase in the number of employees. In September 2011, we commenced plans to reduce expenditures in response to the lower demand for SI products and therefore expect these expenses to decrease in 2012.

Provision (benefit) for Income Taxes

The provision for income taxes in the three months ended August 31, 2011 is based on our current estimate of the effective tax rate based on a forecast of income before taxes for the year ended November 30, 2011. The benefit for income taxes in the three months ended August 31, 2010 primarily related to an adjustment in respect of our 2009 fiscal year.

Net Income

The most significant contributors towards the recording of net income of $9.7 million for the three months ended August 31, 2011 compared to a net income of $37.2 million for the three months ended August 31, 2010, was the decrease in revenues in the SI segment.

Nine Months Ended August 31, 2011 Compared to the Nine Months Ended August 31, 2010

The following is a tabular presentation of our results of operations for the nine months ended August 31, 2011 compared to the nine months ended August 31, 2010. Following the table is a discussion and analysis of our business and results of operations for such periods.

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Revenues

The 12.0% decrease in our revenues in the nine months ended August 31, 2011 compared to the nine months ended August 31, 2010 was primarily attributable to decreased sales of our SI products.

Revenues from sales of our NSS products increased by $39.8 million, or 4.3%. This was largely due to increased demand resulting from two of our customers being acquired by our largest customers and the subsequent sale of our products into the expanded market that these larger companies are able to address. This was offset by a $38.5 million decrease in revenue from our largest customer, NetApp, who, in accordance with the agreement we have with them, have sourced a greater proportion of the products we supply from an alternative supplier.

Revenues from sales of our SI products decreased by $184.1 million, or 67.4%. Demand for SI products reduced due to changes in the underlying market for disk drives such as a reduction in demand for laptop drives as well as customer specific factors, including the proposed acquisition by Western Digital of the disk drive operations of Hitachi, an emerging customer, and increased competition for the supply of production test and qualification systems. In addition revenue in the first half of 2010 benefited from a catch-up following under investment by customers in 2009 in response to the recession.

Cost of Revenues and Gross Profit

The decrease in cost of revenues and in gross profit in the nine months ended August 31, 2011 compared to the nine months ended August 31, 2010 was primarily due to lower SI revenues. As a percentage of revenues, our gross profit was 14.5% for the nine months ended August 31, 2011 compared to 17.9% for the nine months ended August 31, 2010. This change was primarily attributable to the decrease in SI revenues and margins.

The gross margin for our NSS products increased to 15.5% in the nine months ended August 31, 2011 from 13.2% in the nine months ended August 31, 2010. This was attributable to a number of changes to customer and product mix. These beneficial changes included a delay in the expected transition to new lower margin products and the product mix effect of increased demand for higher margin products resulting from certain of our customers being acquired.

The gross margin for SI products decreased to 4.4% in the nine months ended August 31, 2011, from 34.3% in the nine months ended August 31, 2010. This decrease resulted from three main factors. Approximately $7 million of inventory write-downs, related to the reduction in demand, reduced the gross margin by 8.0%. Secondly, the effect of fixed costs relative to lower volumes reduced the gross margin by 13.8%. Thirdly, the remaining shortfall related to changes in product mix, as 2011 revenue includes early stage products that are still in the higher cost introductory phase.

In measuring the performance of our business segments from period to period without variations caused by special or unusual items, we focus on gross profit by product group, which excludes a non-cash equity compensation charge of $0.7 million for the nine months ended August 31, 2011 and $1.1 million for the nine months ended August 31, 2010. See Note 12 to our unaudited condensed consolidated financial statements for a description of our segments and how we measure segment performance.

Research and Development

The $24.3 million, or 38.0%, increase in research and development expense in the nine months ended August 31, 2011 compared to the nine months ended August 31, 2010 resulted primarily from an increase in expenses related to actual and anticipated growth in the business, including an increase in the number of employees of 12% and an increase in external project costs of $11.0 million. Expenditures were reduced in 2009 in response to the recession and were increased through 2010 as business conditions improved. We expect to reduce expenditures in 2012 in response to the lower demand for SI products.

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Selling, General and Administrative

Selling, general and administrative expense increased by $9.3 million, or 21.8%, in the nine months ended August 31, 2011 compared to the nine months ended August 31, 2010. The increase primarily resulted from increased costs related to supporting the planned increase in revenues, including a 20% increase in the number of employees.

Provision (benefit) for Income Taxes

The benefit for income taxes in the nine months ended August 31, 2011 primarily related to a $2.2 million benefit resulting from the completion of an investigation into U.K. tax returns for 2007 and 2008. The remaining balance was based on our current estimate of the effective tax rate based on a forecast of income before taxes for the year ended November 30, 2011. The benefit for income taxes in the nine months ended August 31, 2010 includes an adjustment of $2.6 million is respect of our 2009 fiscal year. The remaining provision for the nine months ended August 31, 2010 primarily related to estimated U.S. income.

Net Income

The most significant contributors towards the recording of net income of $9.8 million for the nine months ended August 31, 2011 compared to a net income of $107.2 million for the nine months ended August 31, 2010, were the decrease in revenues in the SI segment and the $34.0 million increase in operating expenses.

Non-GAAP Financial Measures

The following discussion and analysis of our results of operations include certain non-GAAP financial measures as identified in the reconciliation below. The intention in providing these non-GAAP measures is to provide supplemental information regarding our operational performance while recognizing that they have material limitations and that they should only be referred to, with reference to, and not considered to be a substitute for, or superior to, the corresponding GAAP measure. The financial results calculated in accordance with GAAP and reconciliations of these non-GAAP measures to the comparable GAAP measures should be carefully evaluated. The non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

We believe that the provision of these non-GAAP financial measures is useful to investors and investment analysts because it enables comparison to our historical operating results, those of competitors and other industry participants and also provides transparency to the measures used by management in operational and financial decision making. In relation to the specific items excluded: (a) intangible assets represent costs incurred by the acquired business prior to acquisition, are not cash costs and will not be replaced when the assets are fully amortized and therefore the exclusion of these costs provides management and investors with better visibility of the costs required to generate revenue over time; (b) equity compensation expense is non-cash in nature and is outside the control of management during the period in which the expense is incurred;  (c) the exclusion of the related tax effects of excluding items (a) and (b) is necessary to show the effect on net income of the change in tax expense that would have been recorded if these items had not been incurred; (d) the impact of the reduction in tax rates is non-cash and not comparable across periods or with other companies due to the existence of a significant U.K. related deferred tax asset which is expected to reduce over time.

Included in the table below is a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures as provided above.

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On a non-GAAP basis, a net income of $12.7 million was recorded for the three months ended August 31, 2011 compared with the recording of net income of $37.6 million for the three months ended August 31, 2010 and diluted earnings per share was $0.42 compared with diluted earnings per share of $1.20. These decreases were a result of the same factors described above in the section — “Three Months Ended August 31, 2011 Compared to the Three Months Ended August 31, 2010”.

On a non-GAAP basis, net income for the nine months ended August 31, 2011 decreased from $113.7 million to $18.2 million for the nine months ended August 31, 2010 and diluted earnings per share decreased from $3.66 per share to $0.59 per share. The decreases were a result of the same factors described above in the section — “Nine Months Ended August 31, 2011 Compared to the Nine Months Ended August 31, 2010”.

Liquidity and Capital Resources

We finance our operations primarily through cash balances and cash flow from operations.

Cash flows

Net cash provided by operating activities was $99.4 million in the nine months ended August 31, 2011, compared to $50.1 million in the nine months ended August 31, 2010.

Cash provided by operating activities of $99.4 million for the nine months ended August 31, 2011 resulted from net income after excluding net non-cash charges of $32.3 million and a decrease in working capital of $67.1 million. The decrease in working capital primarily related to decreases in inventory and accounts receivable of $38.7 million and $34.3 million respectively. These decreases resulted from a reduction in SI revenues and improved inventory management for NSS products in a market environment with more stable customer forecasts and the ending of the previously existing supply constraints.

Cash provided by operating activities of $50.1 million for the nine months ended August 31, 2010 resulted primarily from net income after excluding net non-cash charges. This amounted to $130.6 million. This was partly offset by an increase in working capital of $80.5 million. The increase in working capital related to an increase in revenues and included increases in inventory and accounts receivable of $120.5 million and $102.5 million, respectively, partially offset by increases in accounts payable and deferred revenue of $116.8 million and $22.2 million, respectively. An increase in employee compensation and benefits payable of $10.1 million primarily related to the recommencement of the employee bonus scheme also contributed to the cash inflow. Deferred revenue primarily represents advance payments from customers for SI products and varies with the level of orders on hand for these products.

Net cash used in investing activities for the nine months ended August 31, 2011 amounted to $26.3 million. This amount included $6.1 million related to an acquisition in the period, $3.5 million related to the purchase of patents and $1.2 million related to the purchase of a software license. The remaining balance of $15.5 million related to capital expenditure. Net cash used in investing activities for the nine months ended August 31, 2010 amounted to $19.0 million. This amount included $4.9 million related to two acquisitions in the period. The remaining balance related to capital expenditure, amounting to $14.1 million.

Our capital expenditures relate primarily to purchases of equipment such as tooling, production lines and test equipment. We would expect our capital expenditure to generally change in line with our revenues.

Net cash used in our financing activities was $27.7 million in the nine months ended August 31, 2011. This amount includes $23.9 million for the repurchase of shares under our share buy back program as described in the overview, $2.4 million relating to a decrease in a book overdraft and $1.5 million relating to a dividend paid to our shareholders. Cash provided by financing activities in the nine months ended August 31, 2010 was $1.9 million, being the proceeds from the exercise of employee share options.

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Liquidity

As of August 31, 2011, our principal sources of liquidity consisted of cash and cash equivalents of $136.2 million. As set out in the overview, we canceled our credit facilities in April 2011. Our future financing requirements will depend on many factors, but are particularly affected by our ability to generate profits, changes in revenues and associated working capital requirements, changes in the payment terms with our major customers and suppliers of disk drives, and quarterly fluctuations in our revenues. Additionally, our cash flow could be significantly affected by any acquisitions we might choose to make. We believe that our cash and cash equivalents will be sufficient to meet our cash requirements at least through the next 12 months. However, we cannot assure you that additional equity or debt financing will be available to us on acceptable terms or at all.

Accounting Policies

Critical Accounting Policies

Our critical accounting policies are set out in our Annual Report on Form 20-F as filed with the Securities and Exchange Commission on February 22, 2011. By “critical accounting policies” we mean policies that are both important to the portrayal of our financial condition and financial results and require critical management judgments and estimates about matters that are inherently uncertain. Although we believe that our judgments and estimates are appropriate, actual future results may differ from our estimates.

Recent Accounting Pronouncements

In June 2011 the FASB issued new guidance related to the presentation of comprehensive income. An entity can elect to present items of net income and other comprehensive income on one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive, statements. The statements would need to be presented with equal prominence as the other primary financial statements. The items that constitute net income and other comprehensive income do not change. This guidance is effective for annual periods beginning after December 15, 2011. The adoption of the guidance is not expected to have a material impact on our consolidated financial statements.

In October 2009 the FASB issued new guidance related to revenue recognition for arrangements with multiple deliverables and those which include software elements. The issues address certain aspects of the accounting by the vendor that involve more than one deliverable or unit of accounting. The guidance will allow companies to allocate arrangement consideration in multiple deliverable arrangements in a manner that better reflects the transaction’s economics and will remove non-software components of tangible products and certain software components of tangible products from the scope of existing software revenue guidance. For contracts with software elements this will result in the recognition of revenue similar to that for other tangible products.  This guidance is effective for annual periods beginning after June 15, 2010. The adoption of the guidance did not have a material impact on our consolidated financial statements.

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XYRATEX LTD

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

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XYRATEX LTD

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial statements.

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XYRATEX LTD

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)

(US dollars and amounts, in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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XYRATEX LTD

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial statements.

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XYRATEX LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(US dollars and amounts in thousands, except per share data, unless otherwise stated)

1.              The Company and its Operations

Xyratex Ltd together with its subsidiaries (“the Company”) is a leading provider of enterprise-class data storage subsystems and hard disk drive capital equipment with principal operations in the United Kingdom (“U.K.”), the United States of America (“U.S.”) and Malaysia. The Company operates in two business segments: Networked Storage Solutions (“NSS”) and Storage Infrastructure (“SI”). The Company’s NSS products are hard disk drive based data storage subsystems. The Company’s SI products include disk drive production test and qualification systems, media write systems, automation and factory control technology and optical inspection systems.

2.              Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S.

These condensed consolidated financial statements are unaudited but include all adjustments (consisting of normal recurring adjustments) that the Company’s management considers necessary for a fair presentation of the financial position as of such dates and the operating results and cash flows for those periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted. In addition, the results of operations for the interim periods may not necessarily be indicative of the operating results that may be incurred for the entire year.

The November 30, 2010 balance sheet was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the U.S. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Form 20-F as filed with the Securities and Exchange Commission on February 22, 2011.

3.              Equity compensation plans

The following table summarizes equity compensation expense related to share-based awards:

The Company’s share based awards primarily consist of Restricted Stock Units (“RSUs”). The Company also operates an Employee Share Purchase Plan (“ESPP”) for U.S. employees and a Sharesave option plan (“Sharesave Plan”) for U.K. employees. Based on an agreement with the Company’s managing underwriter for the Initial Public Offering in 2004, there are 287 shares authorized for future grants under all share plans.

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Restricted Stock Units

RSUs generally require that shares be awarded over four years from the date of grant, subject to continued service. The vesting of these units is also generally subject to the achievement of certain performance conditions in the year of grant. The holders of RSUs do not hold rights to dividends or dividend equivalents. Equity compensation expense relating to RSUs totaling $6,115 has been recorded in the nine months ended August 31, 2011.  Restricted stock units granted, exercised, canceled and expired are summarized as follows:

Share Option Activity

The Company has four plans under which employees were granted options to purchase Xyratex Ltd shares prior to 2006. Options exercised, canceled or forfeited under all of the Company’s share option plans, excluding the Sharesave Plan, are summarized as follows:

Employee Stock Purchase Plan and Sharesave plan

Employees contributed approximately $414 to awards granted under the ESPP and Sharesave Plan. No shares were issued under the ESPP or Sharesave Plan in the nine months ended August 31, 2011.

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4.              Net earnings per share

Basic net earnings per share for the three and nine months ended August 31, 2011 and August 31, 2010 is computed by dividing net income by the weighted-average number of common shares. Diluted net earnings per share gives effect to all potentially dilutive common share equivalents outstanding during the period.